Auctus Token Sale (ICO): Retirement Planning on the Blockchain

Auctus is a retirement savings platform that allows users to manage portfolios of bonds, stocks and cryptoassets via a single portal.

After completing a successful pre-sale in October 2017, the proceeds of which were used to develop initial Alpha versions of the platform, the Auctus team is seeking to raise an incremental $20 million to support the continued development of the company’s automated investment product. While the current Alpha release includes portfolio recommendation and analytics capabilities, Auctus plans to ultimately support a full suite of asset management, automated investment and tokenized asset exchange operations. The sale process itself appears to be well-designed and includes a verification-based whitelisting procedure, the immediate burning of unsold tokens and unused reserves after 1 year, and a 2-year vesting period with a 6-month cliff for team members.

Project Description

The Auctus Project aims to improve the retirement planning and investment process by integrating crypto and traditional asset portfolios into a single, holistic view. Platform users will be able to simulate future portfolio performance, automate portfolio rebalancing, and receive robo- and human-based financial advice (with the potential for fee reimbursement should forecasts fail to materialize).

While not evident in the March 2018 version of the Auctus white paper, the project’s original plan revolved around automating costly and error-prone contribution collection, payout and reporting processes currently utilized by many pension fund administrators. Despite a warm reception during the pre-sale, Auctus decided to drastically alter its business model and delay the launch of its public sale after internal discussions revealed that a different approach may be more fruitful. Specifically, the company determined that the success of an in-house pension management platform would have relied heavily on adoption by a short list of established pension funds that already have working financial reporting and payments processes in place. As a result of this realization, Auctus pivoted away from its pension-fund-centric model and instead developed a retirement planning app for individuals. While the abrupt change may have given some observers heartburn, one could argue that the ability to rethink the company’s business model so late in the game demonstrates the team’s nimble nature and commitment to getting it right.

What is the Token Being Sold?

AUC tokens facilitate platform access for all parties in the Auctus ecosystem. Retirement savers must maintain a balance of AUC tokens in order to create portfolios, perform analytics, and obtain financial advice. Annual fees are assessed and removed from users’ AUC balances to pay for built-in platform services. In addition, users will use AUC tokens to pay advisors and robo-advisor developers for financial recommendations. These payments will be held in smart contract-based escrow accounts and will only be released when actual results are in-line with (or more favorable than) return and volatility predictions. While the specifics of how these contracts are structured are not discussed in the Auctus documentation, it is critical to identify basic contract terms such as time horizons, return thresholds, and any ability to account for market vs. investment-specific performance upfront as these details should help inform the overall feasibility of financial advisor engagement.

In addition to receiving compensation on a contingent basis, financial advisors are also required to pledge a balance of AUC tokens as collateral prior to being listed as an advisor in the human marketplace. While the exact details have not been fleshed out, in the event that the advisor’s service is not as advertised, or in the case of malicious behavior, the collateral will be forfeited.

Users holding a higher amount of AUC tokens in escrow may be able to access additional premium features and/or pay lower annual fees for standard features. However, AUC tokens cannot be exchanged into other tokenized (or traditional) assets for investment purposes, and instead facilitate platform access and escrow operations only.

While the Auctus team and its partners initially developed robo-advisory and risk analysis tools in house, the company contemplates a retirement app marketplace that’s intended to decentralize the development and maintenance of robo-advisors and risk analysis software in the future. In other words, AUC paid to robo-advisors will initially go to the company (since they have developed all of the robo-advisors currently available) but can ultimately go to external developers who decide to build their own robo-advisor. (Similar to the financial advisor staking process, external developers will also need to stake AUC tokens to be listed on the platform and developer compensation will be contingent on satisfactory portfolio performance).

One could potentially critique the project for a token model that could prove somewhat burdensome to users as the project develops. Specifically, pricing services in tokens, while simultaneously reducing liquidity by requiring tokens to be staked in order to access the platform, could lead to meaningful swings in the fiat price of various services. As a result, vendors offering services on the platform could be forced to continually reprice them, while platform users could face challenges in terms of planning their own token needs or budgeting for services they desire. While this structure may introduce unnecessary volatility into the system, the phenomenon is not unique to Auctus and is common in stake-based token economies that use the same native token to stake and pay for platform services.

What is the Project Status?

Auctus has chosen to rollout functionality in a staggered manner, beginning with the more lightly regulated individual retirement savings market and, over time, working its way up to the more heavily regulated employer-sponsored segment. Users should be able to immediately realize the benefits of basic retirement planning and risk management features, but U.S. customers’ capacity to interact with financial advisors directly may be far off, given the considerable licensing requirements associated with providing financial advice.

While the Alpha release currently deployed in Testnet theoretically supports portfolio construction using both robo- and human-based advisors, it is not clear that individuals can legally provide financial advice (in the U.S.) without meeting stringent licensing requirements. The SEC requires both individual and company-level licenses as a prerequisite to providing financial advice (either via company registration, as a Broker-Dealer and individual Series 6/7 and 63 licenses, or by firm registration, as a Registered Investment Advisor (RIA) and a Series 65 license for each individual advisor). While it would not be impossible for Auctus to become a Broker-Dealer or RIA, registration in this capacity is a fairly arduous process and would require a significant buildout of legal and compliance processes, a feat that Auctus may or may not be inclined to tackle in the near future. The fact that Auctus has no specific plans to go this route suggests that, even were they to switch gears in favor of this approach, there would be significant downtime before U.S. users could receive financial advice from human advisors.

The Auctus team anticipates a Beta release in Q3 2018, marking the commencement of operations on Mainnet. Regulatory issues aside, the Beta release will include the full suite of analytics and advisory services, and will allow users to virtually upload their retirement portfolios for inclusion in return forecasts. Over the subsequent 12 months, Auctus hopes to launch its investment services platform, including the ability to take custody of crypto and traditional assets, perform automated portfolio rebalancing, and process requests for recurring portfolio funding from external sources.

What is the Significance of Blockchain Tech?

Broadly speaking, the retirement planning industry could significantly benefit from incorporating blockchain technology. As many small pension plans still rely on offline spreadsheets and manual reconciliation processes, it is reasonable to assume that the application of programmatic contracts can improve the accuracy of contribution collections, payouts, and reporting. While this line of thinking is consistent with Auctus’ original, fund-centric business model, the new model utilizes blockchain technology mainly for its capacity to facilitate escrow operations, using three primary Ethereum-based smart contracts as the basis for the platform:

  • AUC token contract: The smart contract that defines the AUC token is compliant with ERC-20 and ERC-223 standards and will be initially priced at a rate of 2000 AUCs per ETH.
  • AuctusEscrow contract: The AuctusEscrow smart contract is used for locking or redeeming AUC tokens. This feature is used to facilitate platform access.
  • AuctusPlatform contract: The AuctusPlatform smart contract interacts with the token and escrow contracts. It is the platform’s main smart contract, used to record financial advisor projections. It also orchestrates the purchase of products and services using AUC tokens in the decentralized marketplace, taking into consideration other rules such as matching predictions with subsequently observed results.

Ultimately, a smart contract-based oracle service such as Oraclize will be used to collect actual portfolio performance after a defined period. This information will dictate whether the locked tokens will either be transferred to the advisor, as when advice proves “good” and results match or exceed predictions, or redeemed by the customer, as when results fail to meet expectations.

Who is the Team Behind the Project?

The Auctus Project appears to have a reasonably deep bench of financial and technical experts. CEO Raphael Vantroost held various strategy and M&A positions at UBS and Deutsche Bank and studied economics at Yale University. The Head of Strategy, Vinicius Melo, who worked at a major Brazilian pension fund company, FUNPRESP-JUD,  brings retirement fund experience to the team.

The entire technical team previously worked together at DTI Digital, a Brazilian IT consulting and development firm with approximately 150 employees. While individual bios suggest the team has extensive software development experience, the extent of the team’s blockchain expertise is unclear.

In addition to leaning on a board of individual advisors, Auctus is collaborating with various third parties in areas such as robo-advisory, analytics, lending, and trading to further strengthen its service offering.

Prospects and Challenges for Auctus

Both empirically and from the perspective of portfolio theory, it is evident that adding a small amount of cryptoassets into a traditional portfolio of stocks and bonds will improve risk-adjusted returns across most historical periods. This is primarily due to the low correlation between crypto and traditional assets. As discussed in Cryptoassets by Chris Burniske and Jack Tatar, when quarterly rebalancing is used to maintain consistent allocations over time, the inclusion of cryptoassets typically improves the Sharpe Ratio, even during periods of crypto market declines. While the details of this phenomenon are outside the scope of this report, suffice it to say there are legitimate benefits to commingling traditional and crypto assets in a single portfolio – a fact that helps legitimize the Auctus platform.

While AUC tokens may be well-positioned to benefit from a movement in favor of incorporating cryptoassets into traditional retirement portfolios, there are certainly a number of competitors that could give Auctus a run for their money. As the Auctus white paper points out, Wealthfront and Betterment are innovators in the retirement space that currently offer tailored platforms for savers through the use of innovative robo-advisory and analytics. Furthermore, these companies are RIAs with high visibility and laudable track-records. That being said, Auctus is the first blockchain-based project to give users a holistic view of their crypto and traditional portfolios, something that Wealthfront and Betterment have yet to offer. Auctus has also taken steps to involve the community at large, creating opportunities for advisors, investors, and developers to work together to create a more effective way of saving for retirement.

Beyond the incumbent competition and regulatory challenges associated with providing financial advice and holding custody of client assets, Auctus may face additional hurdles properly incentivizing financial advisors to join the platform. Financial advisors who are licensed in the U.S. are most likely already working for a Broker-Dealer or RIA (Broker-Dealer or RIA sponsorship is required in order to sit for the individual licensing exams) and an advisor’s current employer would certainly prohibit him or her from offering financial advice in any formal capacity outside the scope of his or her current employment. With that in mind, it’s difficult to envision a large supply of financial advisors who would be interested in leaving their current jobs in order to pursue opportunities on the Auctus platform. This possible lack of advisors represents a potentially significant hole in Auctus’ development plans, given the importance of attracting good advisor talent to the platform.

During a conversation with the Auctus team, the CEO articulated his willingness to pursue high-level partnerships, potentially with well-established financial firms. While those who are considering purchasing AUC tokens should not base any decisions on hopes of a large-scale partnership, a successful partnership with a RIA could help Auctus navigate the vastly complex landscape of U.S. financial regulation while simultaneously allowing the project to focus on its core offering.

Overall, Auctus seems like an intriguing project that has benefited from the team’s serious effort to take on a challenging market. The scale of opportunity is sizeable, and Auctus could find a global audience of concerned savers and willing platform users. On a more worrisome note, this is a complex, highly-regulated, and very competitive market segment. While one can applaud the novel application of blockchain-based escrow functionality to the wealth management industry, potential risks remain in terms of a lack of financial advisor interest, complexities associated with a time horizon mismatch between advisors’ predictions and retirement savers’ financial plan, and the complicated nature of the regulatory landscape.

Prospective token purchasers may wonder if Auctus’ wide-ranging approach of attempting to tackle multiple segments of the global retirement industry is overly ambitious, particularly at this early-stage of blockchain-based innovation within the sector. Conversely, if Auctus is able to grasp a particular niche, perhaps in one sizeable market or across a limited number of countries with similar legal topography, the company could quickly establish a strong base from which it could begin to build a useful and profitable suite of services. Prospective token purchasers would be well-served to carefully monitor the company’s progress in order to identify when or if such progress begins to develop.

Project Details

Incorporation status Auctus Ltd. (British Virgin Islands)
Team openness Full transparency
Blockchain Developer Ariny Guedes
Technical White Paper Yes
Available Project Code Yes
Prototype Available

Token and Sale Details

The Auctus Project raised 959 ETH in a pre-sale in October 2017 and incorporated in the British Virgin Islands earlier this year. The pre-sale was conducted as a test run for the token sale and to help cover preliminary legal and PR expenses. Auctus exceeded its soft cap of 400 ETH in less than 11 hours, raising funds from 254 distinct addresses.

U.S. investors are not permitted to participate in the token sale. Token sale participants will be required to register with an email address and the whitelisting/KYC process will require a photo ID and proof of residence. Residents of China, Gibraltar, Singapore, Kuwait and South Korea are also not eligible to participate.

 

Role of token Payment/Access
Token supply 80 million AUC
Distributed in ICO 40.8 million AUC
Emission rate No further token issuance is planned
Blockchain Ethereum
Consensus method Proof of Work

Official Resources